There is a growing consensus among U.S. transportation researchers, and increasingly among state departments of transportation (DOTs), that our main highway funding source—per-gallon taxes on gasoline and diesel fuel—will not be sustainable on a long-term basis. This is due to a number of factors, including increasingly stringent federal fuel economy regulations and the growth of non-petroleum power sources (especially electricity) for both personal vehicles and trucks.
This policy brief makes a number of points about how a state could make an orderly transition from per-gallon fuel taxes to per-mile charges. The discussion acknowledges that mileage-based user fees (MBUFs) currently lack majority support among taxpayers, motorists, and the trucking industry.
To address this challenge, the paper argues that MBUF advocates must do a number of things besides encouraging and drawing lessons from state mileage-based user fee pilot projects. Specifically, MBUF advocates should:
- Propose fixing all the major shortcomings of per-gallon fuel taxes, not simply projected revenue shortfalls;
- Ensure that at the time a transition program is launched, the starting point will be revenue-neutral and that no roadway user will pay both a state fuel tax and a state MBUF;
- Restore the roadway funding mechanism to the original users-pay/users-benefit principle that underlay both the original state fuel taxes and the new federal fuel taxes that were created to pay for building the Interstate highways; and,
- Ensure that the MBUFs are simple, fair, customer-friendly, and analogous to the payment mechanisms for other utilities such as electricity and water supply.
Given the need to experiment with different ways to structure MBUF systems (mileage recording, mileage uploading, privacy protection, provider accountability, etc.), the transition should be led by the states as the laboratories of democracy. States are more trusted on transportation than the federal government, and trust is essential for this transition.
Since the need for transitioning to per-mile charges is still poorly understood, it would be wiser to begin the transition based on a more understandable and more urgent need: reconstructing and modernizing the aging Interstate highways, state by state. About a dozen states are already considering toll finance for this purpose, and the new electronic toll collection systems could state their toll rates on a per-mile basis. Since the Interstates handle 25 percent of all U.S vehicle-miles of travel (VMT), a state that converted its Interstates to per-mile electronic tolling would shift 25 percent of its VMT to per-mile rather than per-gallon funding. Adding in other limited-access highways also suitable for transponder tolling could bring the total to nearly 35 percent of all VMT—a major fraction of the eventual 100 percent conversion to per-mile charging.
Per-mile charging for limited-access highways would get people used to paying per mile, and rebates of state fuel taxes for those miles would set a precedent for no one having to pay both a per-mile charge and a per-gallon fuel tax for the same roadway miles as the transition to MBUFs proceeded to other roadways. With accountability to customers established by a direct users-pay/users-benefit system for limited-access highways, the case for creating similar accountability for state and local roadways would be more understandable. At the end of the transition from per-gallon to per-mile, direct customer-provider relationships would exist as follows:
- Limited-access highways » Toll agencies and/or P3 concession companies
- State highways » State DOT
- Local roadways » County or other local transportation agencies
This would provide a transparent system by which all vehicle operators (individuals and companies) would know what they pay for each category of roads in their state, and whom to hold accountable for road performance. These would be very important benefits of the transition from per-gallon taxes to per-mile charges.